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What is a Proforma Invoice and When to Use It?

A proforma invoice is also traditionally known as a quote or an estimate. An invoice such as this is a preliminary bill of sale and it outlines the intent of the seller to deliver services or products to a customer. The services or products will be delivered at a specific price. However, the price has not yet been formally agreed upon, meaning a proforma invoice is not a true invoice as yet.

  1. What is the Difference Between an Invoice and a Proforma Invoice?
  2. When Do You Need to Use a Proforma Invoice?
  3. Why is a Proforma Invoice Useful?
  4. What Should a Proforma Invoice Look Like?
proforma invoice
A proforma invoice is also traditionally known as a quote or an estimate. (Picture © AdobeStock)

What is the Difference Between an Invoice and a Proforma Invoice?

An invoice is a document that gives an accurate description of goods or services that have been sent. The invoice will be sent at the request of the purchaser. A proforma invoice works as a quote or estimate and is, therefore, not recorded or used to charge the purchaser’s account.

If you were to ask someone to give you an estimate of their services, for example, they may provide you with an estimate. This estimate is, in essence, a proforma invoice. The seller or provider of the services has not asked you to make a formal payment as yet, they are simply informing you of the price or what it’s likely to be.

When Do You Need to Use a Proforma Invoice?

If changes need to be made to an invoice that has already been sent or is not quite complete a proforma invoice may be used. It can help to provide an indication as to how much the final invoice may be. However, an invoice such as this can be adjusted as and when it needs to be.

Used when an item is being shipped, a proforma invoice will usually include details such as the shipping process, the weight if applicable and the packaging. It may also include the delivery fees too if the customer needs to pay for them. If you plan to send a product or products over an international border a proforma invoice can prove to be quite useful.

Why is a Proforma Invoice Useful?

A proforma invoice can prove useful to the buyer and seller. It can have a baseline for the sale of the goods or services and include a breakdown of all items without it being a legally-binding document. However, if changes need to be made to the invoice upon request the proforma invoice can be changed to a completed invoice. This can be done by adding an invoice number and changing the title of the proforma invoice to ‘Invoice’.

Let’s imagine that you would like to hire a contractor to extend your office. They may provide you with an estimate (proforma invoice) to begin with, but the amount can be changed. So, for example, if you wanted to extend your office even more, the estimate is likely to be adjusted. Upon completion of the work, you will be sent an invoice that acts as a bill.

What Should a Proforma Invoice Look Like?

A proforma invoice will typically resemble a traditionally completed invoice. However, there is no specific requirement for such an invoice. Ensuring that an invoice such as this looks a lot like a completed invoice is a safe method to use. What’s more, is it is very easy to change a proforma invoice to a regular invoice. However, you will need to make sure that it does not contain any invoice numbers. This is because adding invoice numbers will change this less formal invoice to a legally-binding one.

A proforma invoice can prove to be very useful to you and/or your customers. Chances are, you may have seen many of these invoices in the past, but they were simply referred to as ‘Quotes’ or ‘Estimates’.

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